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TABLE OF CONTENTS Preface: Competing Flat Out Chapter 1: The Orchestration Imperative PART I: Focus: Firm and Network Chapter 2: Orchestrate the Network Chapter 3: Compete Network Against Network PART II: Management: Control and Empowerment Chapter 4: Take Responsibility for the Whole Chain (Whether You Own It or Not) Chapter 5: Empower ?Little John Waynes? To Create a Big-Small Company Chapter 6: Establish the Three-Year Stretch to Balance Stability and Renewal Chapter 7: Build the Company Around the Customer Chapter 8: Follow the 30/70 Rule To Create Loose-Tight Organizations PART III: Value Creation: Specialization and Integration Chapter 9: Capture the Soft Dollars by Looking Beyond the Factory Chapter 10: Sell to the Source by Bridging Marketing and Operations PART IV: Implications for Policy and Practice Chapter 11: Policy: Building a Borderless Business in a World of Nation States Chapter 12: Practice: A Lever To Move the World Conclusion: Are You Ready To Compete Flat Out? (b)Acknowledgments Acknowledgements We are grateful to our many partners who helped us build this network and shared their insights for this book, including Bob Weinberg of KB Toys and Mike Mayo of Gymboree. We also would like to acknowledge the hard work and many contributions of Chang Ka Mun, Helen Chin, Freda Tong and Oscar Yui of the Li & Fung Research Centre for their extensive assistance with research and information throughout this process. We are thankful to many leaders within Li & Fung for sharing their stories and own perspectives on network orchestration and the Li & Fung business, including Henry Chan, Danny Lau, Frank Leong, Dow Famulak, Emily Mak, Wai Ping Leung, Marc Compagnon, Rick Darling, Tom Haugen, Richard Yeung, Gerard Raymond, Stewart Kwok. [Add others? Order?] Many colleagues and reviewers have helped us improve the book. In particular, Paul Kleindorfer, Colin Crook, Len Lindegren and Roy Carriker, actively engaged in exploring the frontiers of the ?new theory of the firm,? have made their mark upon this project in large and small ways throughout this process. Without the consistent belief and guidance of Tim Moore at Wharton School Publishing, this book would never have emerged in its present form. We also have benefited from the active engagement and expert guidance of Russ Hall and Bob Wallace, as well as other reviewers. Finally, we could not have developed this book without the involvement of Robert Gunther, who conducted interviews, wrote, edited and collaborated with the authors in Hong Kong and in Philadelphia through many iterations of the manuscript. We are very grateful for his many contributions to this work. [Begin About the Author Page] (b)About the Author EE/AE: Type your bio here. [End About the Author Page] [End of Front Matter (Preface and/or Intro will be placed in the book following the front matter)] Preface: Competing Flat Out As Thomas Friedman points out in The World Is Flat, a convergence of technology, globalization and other forces has transformed the way we work. India, China and other countries are an increasingly significant part of the global supply chain for manufacturing and services. Geography, while not irrelevant, is no longer the obstacle it once was, and companies can stretch their manufacturing, customer service and other business processes around the globe. This dispersion of the supply chain creates tremendous opportunities to change the way we do business in this world, how we design and run our companies ? if we are prepared to rise to this challenge. Li & Fung was working in this flat world since the early 1980s, long before it had a name, and now produces two billion pieces of apparel, toys and other items every year. Li & Fung now accounts for over $8 billion in garments and consumer goods for some of the best brands in the world. By the time of its 100th anniversary in 2006, Li & Fung had become the world?s largest sourcing company, growing at a compound annual rate of 22 percent for the last 12 years. Yet Li & Fung does not own a single factory. It is a flat business for a flat world. The company started as a trading broker in Guangzhou (Canton) in 1906 during the Qing Dynasty, transformed itself into a Hong Kong-based exporter and then into a multinational. Finally, the company reinvented itself for the flat world in a new role, as a ?network orchestrator.? It is now the orchestrator of a network of more that 7,500 suppliers served by over 70 sourcing offices in more than 40 countries and territories. The company indirectly provides employment for more than two million people in its network of suppliers, but only less than half a percent of these are on Li & Fung payroll. With this lean structure, each of the company?s own employees generates about US$900,000 in sales, earning a return on equity of more than 30 percent per annum. As a family firm at the intersection of the East and West, the company is both deeply traditional and thoroughly modern. Recognizing its creative thinking and use of technology, Wired magazine placed Li & Fung among young upstarts such as Google, Apple and Amazon on its 2005 ?Wired 40? list. Over the years, Li & Fung?s innovations have attracted attention ? from business school case studies to magazine articles to books. Now, we are pleased to share more detailed insights from the transformations at the company and examine how they can help other enterprises to compete in a flat world. Victor and William Fung pioneered these transformations in the trading company founded by their grandfather, Mr. Fung Pak-liu. Wharton Professor Jerry Wind has worked with them since 1998 on the company?s tri-annual strategic review process and also offers broader perspectives from research and practice. The flat world has ripped the lid off the corporation. It has broken through traditional national and organizational borders. It challenges the way we look at and run everything from enterprises to nations. Companies in manufacturing will find these innovations and shifts in thinking directly relevant. But the impact is not limited to manufacturing, or to companies with offshore activities. The principles of network orchestration are relevant to any organization and industry, including services, that wants to take advantage of the opportunities presented by the forces flattening our world. The principles of ?network orchestration,? discussed in this book, have applications in many areas, from managing strategic alliances (which have a poor track record of success) to services to open innovation to co-marketing. As you read this, freighters and cargo planes are churning across the planet. High-speed information networks are whisking voice and information, and billions of dollars, instantaneously around the world. Looking down from the Li & Fung conference room of the 34th floor of Alexandra House where we worked on the book, we could see the freighters steaming in and out of Hong Kong harbor. It is a hive of activity, and the pace of commerce just keeps increasing, and evolving in new ways. Every day, the view changes. It has been a tremendous adventure and education to have such a ringside seat on the emergence of this flat world and to be an active participant in its development. These freighters are connecting points of the globe that have never been connected before, in new and changing configurations. The ships and planes streaming across the world are rewiring the neural networks of commerce. How does your own thinking need to change to keep pace? Have you understood the implications of the flat world for your own business? The flat world is here. Organizations that can embrace it and understand how it works will find it offers many new opportunities. Those that cannot adapt quickly enough to these new realities will fall behind or be bought out by those that have learned how to compete in a flat world. The opportunities are as broad as the world. How do you need to remake your organization, management and mindset to seize these opportunities? Victor Fung William Fung Jerry Wind
Library of Congress Subject Headings for this publication:
Business logistics -- Management.
Business networks -- Management.
Business enterprises -- Computer networks -- Management.
Electronic commerce -- Management.